Understanding The Weekly Loss Limit Level
The Weekly Loss Limit Level is an industry standard limit imposed on a trader when trading T4TCapital’s accounts to protect the traders’ previous weekly profits. It is important traders make a profit with our trading accounts. If a trader had a great previous week trading it stops the trader from losing everything that was made during that week. Additionally it stops the trader from going straight down to the Maximum Drawdown Level and blowing up their account.
How is it calculated in the Practical Assessment?
The same limits apply to both the Practical Assessment and the Live Account, with a beneficial bonus found in the Live Account which we will discuss later in this article.
For the Practical Assessment it is calculated by taking 2% of your account start balance and subtracting from the Weekly Start Balance to give you the Weekly Loss Limit Level.
Practical Assessment Acct $100,000
Weekly Start Balance: $101,000
Weekly Loss Limit Level = $101,000 – (2%x100,000=$2000) = $99,000
Your Equity Balance or your Account Balance may not go below this level during the week.
It remains static at this level for the duration of the week, so in the above case your equity balance or the account balance cannot go below the Weekly Loss Limit Level during the week.
It is a fixed Level and does not change all week until it gets recalculated at the beginning of the next week.
Breach of the Weekly Loss Limit Level in the Practical Assessment.
As it is a limit, during the Practical Assessment if you should break this limit you will be notified that your Weekly Loss Limit Level has been breached and your account has been disabled. You may reset by paying the reset fee for the applicable account size and you will be provided with a new account with no previous account history to start again.
How is it calculated in the Live Account?
In order to give the trader greater flexibility in their trading the percentage calculation is increased to 5% after the trader has increased their profits to 10% or above. If the trader is above 10% profits and is using the 5% calculation and then subsequently suffers a series of losses and the realised profits drop below 10% the calculation for the Weekly Loss Limit Level reverts back to 2%.
***As the profit target for the Practical Assessment is 10%, your Practical Assessment never gets above the 10% so is not applicable to the Practical Assessment.***
Lets take a look at an example using a $100,000 Live Account
Weekly Start Balance: $109,000
Weekly Loss Limit Level = $109,000 – (2% x $100,000=$2000) =$107,000
Weekly Start Balance: $114,000
Weekly Loss Limit Level = $114,000 – (5% x $100,000=$5000) = $109,000
So as you can see in the early days of the account you are safely building up a buffer to enable you to maximise your profits later on with the additional 3%.
Breach of the Weekly Loss Limit Level in the Live Account.
Should you breach the Weekly Loss Limit Level in the Live Account your account will be terminated. There is no reset facility as it is a live account. Should you wish to try again you will need to demonstrate again you have the ability to adhere to the limits by retaking Practical Assessment.
As you can see when you start trading the $100K acct as shown above, in the first week your Weekly Loss Limit Level is $98K. This means you have an Available Risk (AR) of $2000. This means you cannot have more than your Available Risk ($2000) in the market at any one time. This includes open trades and pending trades and is the cumulative total of all trades. Why pending trades? Pending trades can be triggered at any time and is regarded as risk in the market.
If your ‘limiting limit’ (we cover this in another article) remains as the Weekly Loss Limit Level and you have lost $500 on an open trade your available risk is now $1500, so if you wish to open another trade you only have $1500 of risk available for any other market or pending trades.
In short the Weekly Loss Limit Level protects your profits from the previous week, or if you have had a run of bad trades limits your losses during that week to allow you to re-assess and restart the next week.
Be very careful not to exceed the Available Risk by putting more risk on a trade than is available or your trade will be automatically closed by our trade server.
Next we look at the Maximum Drawdown.